Rue21, The Cato Corporation, Aeropostale; Zero Debt Small-Cap Retail Plays
Rue21, The Cato Corporation, Aeropostale; Zero Debt Small-Cap Retail Plays

Profits in the retail apparel sector are without doubt tied to overall consumer spending behavior and indicators.  Those retailers that operate with short debt loads and with solid returns keep hold of substantially more strategic flexibility. As you research this sector for possible additions to your portfolio keep in mind the company's cash on hand, its dividend yield, and projected profitability. Although clothing, one of life’s basics, is considered to be a non-discretionary spending item, there are a ton of venues out there from which to purchase clothing, and consumers clearly have choices in their non-discretionary spending.  A couple of them are small-caps worth looking into.



Rue21 (NASDAQ: RUE) is a specialty apparel retailer in the United States. It sells apparel and accessories for both males and females, generally geared towards a teen to 20’s clientele. As of August 2012, the company had 843 stores in 46 of 50 states. Rue has returned over 42 percent in the last 12 months. Earnings are expected to increase by about 20 percent year-over year.  The company has a market cap of $727 million and shares are currently trading at $30.58. The company does not pay a dividend, although it is steadily profitable and infrequently misses earnings. Rue operates with no debt.



The Cato Corporation (NYSE: CATO), found primarily in the Southeastern US, is a retailer of women’s apparel. Cato is a dividend paying company, currently yielding 3.75 percent. The company has a record of paying dividends since its IPO in 1968. Cato reported third quarter EPS of $0.16, $0.01 better than what the analyst were calling for. Revenue for the quarter came in on target at $197.6 million. Earnings are anticipated to remain steady into 2013. Like Rue, this company also operates with zero debt. Cato has a market cap of $790 million and shares are trading at $27.07.  The company’s stock did generate a return of about 13 percent over the past year excluding the dividend. The company holds around 30 percent of its market cap in cash or short term investments which bodes well in the event of any current or future economic issues.



Aeropostale (NYSE: ARO) is another retailer worth looking into in our opinion. Although the company has had some turbulent times lately with disappointing holiday sales, it does operate with zero debt. At the moment the company’s short interest sits at just under 4 days of volume, but it is trending upward. The stock has dipped 40 percent from the 52-week high.  But if cash flow is anything to go by, Aeropostale has that in spades with a yield of 10.6 percent. The company has $2.35 in cash on hand for each share currently outstanding.  The company is also expanding the number of factories across the country by an addition 173 locations. The company has seen a 27 percent growth of online sales in recent months. This may be a good long-term play or even one to consider for the dips. Aero has a market cap of $1.07 billion and shares are going for $13.78.


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